NEW YORK
— The growing list of American corporations that have doctored their books or found other ways to cheat is quickly becoming a crisis for American capitalism.

By now, many of the names have become painfully familiar: Enron, Tyco, ImClone, Adelphia. Now add WorldCom, the nation's second-largest provider of long-distance service. The news that the Jackson, Miss.-based firm committed the largest accounting fraud ever could end up affecting millions of consumers and is already shaking Wall Street to its suspenders.

More broadly, it threatens to undermine the fragile economic recovery and is further eroding public confidence in corporate America. It is calling into question some of the most sacred principles of American capitalism. If last decade was the Roaring '90s, this one is starting out as the Odious OOs.

"This is a crisis of the moral fiber of American capitalism," says Mark Cooper of the Consumer Federation of America. "What's really at stake here is the willingness of Americans to invest in these companies.

If people's money goes into their mattresses, the whole system is going to slow down and choke."

Investors, for their part, are unsure what to believe anymore since Worldcom misreported its cash flow by $3.8 billion. Yesterday, the financial markets opened nervously, with the Dow Jones Industrial Average sinking early in the day below 9,000 for the first since September.

President Bush on Wednesday called reports that WorldCom Inc. disguised $3.8 billion in expenses outrageous and said the government "will fully investigate and hold people accountable."

A kick to Washington

The WorldCom collapse is likely to prompt new calls for Washington to act  quickly  to help bolster the markets. Earlier this month, the Securities and Exchange Commission (SEC) proposed that CEOs should have to personally vouch for the veracity, timeliness, and fairness of their financial statements. It called for a regulatory board for accountants.

Strong legislation to regulate accountants has passed the Senate Banking Committee. While no plans currently exist to bring it up before the full Senate before the July 4th recess  and the legislation has been stalled in the House  the WorldCom debacle events could spur quicker action.

"This latest accounting scandal only highlights the importance of Congress working together to pass tough new laws, which will prevent future abuses and restore investor confidence in the stock markets and corporate America," says Rep. Billy Tauzin (R) of Louisiana.

The collapse of WorldCom is likely to have a wide impact:

 For consumers, the news is not good. An estimated 1 in 5 Americans use WorldCom as their long-distance carrier. They can expect higher prices and poorer service, particularly if the company is forced into bankruptcy. "Bankruptcy judges run companies to squeeze blood from the turnip," says Mr. Cooper. "They slash expenses and increase cash flow."

That could prompt people to switch to other companies, triggering what Cooper calls a "death spiral" for WorldCom.

 The company's problems could spread to the Internet. WorldCom is the nation's largest provider of Internet backbone services. That means they provide the telecommunications infrastructure that Internet Service Providers (ISP) use. Currently there are 7,500 ISPs nationwide. WorldCom provides services to more than 3,000 of them. Consumers who use them could see prices rise, at a minimum.

 WorldCom bond and shareholders have seen the value of the company fall in value from a high of $115.3 billion to less than $1 billion. The stock, once one of the high flyers, is down over 95 percent. It's worth only pennies per share today. "We have had a sell on the stock for a few months," says Bruce Roberts, an analyst with Dresdner Klienwort Benson. "I don't think the stock is worth anything." He expects the firm to be reorganized to reduce its debts, with bankruptcy a "potential."

The company's credit rating is in tatters with its bonds considered junk  or worse.

WorldCom is a product of the frothy 1990s. Early in the decade, as the deregulated long-distance market was still in flux, what was then MCI Communications came up with its innovative "Friends and Family" calling plan. Within three years it had attracted more than 12 million new customers, according to Net Economy, a telecommunications journal. That was enough to give AT&T serious competition.

In 1997, MCI and WorldCom announced their intentions to merge, citing operating cost savings of between $2.5 and $5.6 billion. But problems quickly surfaced. Growth began to stagnate. Customer complaints piled up. A sampling from Epinions.com, a popular consumer review site, gives a sense of what WorldCom consumers were experiencing.

Some of the comments were positive, particularly about the company's rates state to state. But most were negative, particularly about customer service. "What do they hire, second graders?" writes one. "They don't tell you everything when you sign up," complains another.

A CEO with deep pockets

WorldCom's founder and former chairman, Bernard Ebbers, became a well-known figure in Washington, where he liberally dispensed cash. Last year, according to the Center for Responsive Politics, WorldCom spent $100,000 on a Bush fundraiser and gave $50,000 to the Democratic National Committee.

Yet last year the company revealed that it had loaned Mr. Ebbers $366 million, which he used to buy WorldCom stock. The stock was pledged against loans, which the company ultimately had to write off. "It's money they could use now," says Drake Johnstone, an analyst at Richmond-based broker Davenport & Co.

 Staff writer David R. Francis contributed to this report from Boston.